A late payment cannot be always be avoided. But unfortunately just one late payment has the potential to damage a credit score.
Credit scores are calculated using several major factors and one of those factors is payment history. Payment history is the largest factor in your credit score. It accounts for 35% of your overall credit score. Just one late payment can tank a good credit score.
FICO scores consider how recent the late payments are, how severe the late payments are, and how frequently the late payments occur. Several late payments in the past may not affect your score as bad as a recent late payment. Below is a breakdown of late payments:
Recent Late Payments
The more recent a late payment, the more damaging it will be to your credit scores. Older late payments are less damaging, especially if it is an isolated incident. A current late payment can drop a good credit score by as much as 110 points.
If you do not routinely pay late and it is an isolated incident, the damage will not be as bad and should not be long term to your credit score once you begin paying on time again. The odd thing about late payments is that if your credit is already bad and you routinely pay late, one late payment will only drop your score by as much as 30 points.
30 Day Late Payment
A 30 day late payment is not as damaging as a 90 day late payment. Older 30 day late payments which were isolated incidents are not going to adversely affect your credit score. However, if the 30 day late payment is reporting as currently 30 days late, it will damage your credit score by as much as 110 points.
60 Day Late Payment
A 60 day late payment that is reporting as currently late will tremendously damage your credit. However, once it is paid and if it is not a habitual pattern, your credit score will not be damaged long term.
90 Day Late Payment
A 90 day late payment is the credit score killer. Payments that are 90 days late are used in the credit scoring model as a predictor of high risk and whether you will default on your other obligations. This negative entry can greatly damage your scores up to 4 years and can remain on your credit reports for 7 years.
Credit scoring models conclude once you go 90 days late on an obligation, you are likely to repeat that behavior compared to a consumer who has never been 90 days late. 90 day late payments are detrimental to your credit score.
120 Day Late Payments
At this point the account is in danger of being charged-off, transferred or sold to a collection agency. As you know, charge-offs and collection accounts plummet your credit scores. You must work diligently to avoid this or dispute these entries until they are deleted.
Time-Frame for Late Payments
There is also a time-frame the credit bureaus take into account when it comes to how late payments affect your credit score. The time-frame is broken down by number of months and percentage.
As stated, payment history accounts for 35% of your credit score. But any late payment in the:
- Most recent 12 months counts as 40% of the 35% payment history;
- Prior 12-24 months counts as 30% of the 35% payment history;
- Prior 24-36 months counts as 20% of the 35% payment history;
- Prior 36-48 months counts as 10% of the 35% payment history; and,
- Once an account is 48 months and older it no longer goes into calculating your credit score.
Credit Scoring Models and Late Payments
Although credit scoring is complex, most credit scoring models involve predicting whether a consumer will default on an account 90 days or worse. An interesting aspect of the risk scoring model seems to be the amount of a default is not important, it is the default itself.
In other words whether you default $500 on an account or $5,000 is irrelevant. The fact that the account went into default is the credit score killer.
The good news is that you can recover fairly quickly from the negative effects of late payments by beginning to pay on time. A series of on-time payments will tremendously help your credit score.
It’s important to always stay on top of all of your bills. Circumstances may arise that prevent you from staying current such as an unexpected medical emergency or job loss. But before you are late with a payment reach out to your creditor, they may be willing to work something out with you. Avoid at all costs a creditor selling a delinquent account to a debt collector.
If you do have late payments try sending a goodwill letter to the creditor. If you normally pay on time and have a good reason why you were late, the creditor may be willing to delete the late payment notations on a one time basis.
Another alternative to get rid of late payments is to dispute late payments on your own or allow a professional repair your credit. Lexington Law helped clients remove 4,833,329 negative items in 2013 alone. Those negative credit items included late revolving credit payments.